What are the Different Types of Mutual Funds?


The investment scenario in India is growing by double digits. Investors are on a lookout to park their money into high-return low-risk instruments, in order to achieve their long-term financial goals.
Considering the number of options available, it is confusing for the investors to pick one. Hence, it is important that every investor is aware of the type of investment options and the kind of investment they can make in the same.
Mutual funds are a flexible and hassle-free form of investments, which give high returns at a manageable risk. Since the fund is diversified, the overall cost and risk of the portfolio come down. Here are the different types of mutual funds you can invest in.
1. Open-ended funds
These funds are open for purchase and for redemption all through the year. There is no limit on the amount of investment and the purchase will be made at the prevailing Net Asset Values (NAVs).
2. Close-ended funds
These funds are open for purchase only during the offer period. Once purchased, they cannot be sold to the fund and can be only sold through the stock market at the prevailing market rate.
3. Equity funds
These funds are high-risk funds, which invest in equity stock of companies.
4. Debt funds
Debt funds invest in debt instrument and are considered a safe investment.
5. Money market funds
Investments in liquid instruments like commercial papers and treasury bills are made through these funds.
6. Balanced funds
These funds invest in a mix of debt and equity, which balances the risk of the investment.
7. Growth funds
This fund is invested in equity stocks in order to generate capital appreciation.
8. Income funds
These funds are less risky since they are invested in fixed income instruments like bonds and debentures.
9. Tax saving funds
These funds remain invested in equity shares in order to ensure a tax deduction on the returns generated.
10. Index funds
These funds track the returns of an index and have a lower cost as compared to actively managed funds.
11. Specialty funds
Specialty mutual fund focuses on special investment areas like real estate and commodities.
12. Fund of funds
These funds make diversification easier by investing in another fund. One fund is further invested in another fund.
In order to make an investment, individuals need to choose the most suitable fund for their financial goals. Investing in a mutual fund is easy and can be done through an SIP, which will ensure investment at regular intervals. The key steps to choosing the right fund are, to begin with, a financial plan and understand your needs. Depending on the purpose of investment, you can choose a fund. If you want a quick growth in wealth and can bear the higher risk, you can choose equity funds. If you are investing for the sole purpose of tax saving, you can choose tax saving funds. Understand your needs before you take a decision to invest in the mutual fund schemes.